China Unicom selects Cisco for VoIP network expansion

Cisco Systems will provide voice over Internet Protocol (VoIP) gateways, H.323 gatekeepers and cross-connection switches to China Unicom as part of a network expansion that will extend the carrier’s network to more than 321 cities across 30 provinces in the People’s Republic of China.

The deal is worth about $40 million and is the first manifestation of a memorandum of understanding signed by the companies in June that calls for joint development of technology and consulting services during a two-year period. In addition to providing equipment, Cisco--with several of its Service Provider Solutions Ecosystem partners--will provide pre-paid and post-paid voice applications for the packet-based network.

While the dollars do not represent a huge deal by Cisco standards, the contract with China Unicom will help the company maintain its leadership position in that country, which will become important as the VoIP market develops, said a Cisco spokeswoman.

“Only one out of every six residents has landline phone service in China, because it’s too costly to put down the PSTN,” the spokeswoman said. “And carriers are going with architectures that will allow them to do more than voice, because that’s where the money is. So voice over IP is wide open.”

China’s VoIP market is expected to account for about 12% of all packet-based telephony traffic worldwide by year-end 2004, or 57 billion voice minutes annually (of a total 461 billion voice minutes annually), according to data from Probe Research. About 11 billion voice minutes were transmitted across packet networks in 2000.

“Any news in this market is positive news, although the dollar amounts are small,” said Steve Kamman, an analyst with CIBC World Markets.

However, he noted the United States, Europe and Japan account for about 75% of global gross domestic product.

“So, while its important to make sales in emerging markets, the reality is that until the big developed economies begin to bounce back, we remain cautious about the overall outlook for the sector,” he said.

Gina Sockolow, an analyst with Buckingham Research Group, suggested caution for a different reason.

“Every time I see a company talk about landing a contract in China, I point to the contract Lucent signed that supposedly was going to be worth a billion dollars,” she said. “When push came to shove, the government took the designs and subcontracted the project. Then they tried to get Lucent to drop it’s pricing.”